What changed in this filing

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Item 1. Financial Statements

2023-05-08 compared with 2022-11-07 · 115 added, 171 removed, 455 unchanged (39% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

(In thousands, except share and per share data)

3 unchanged sentences

Net investment in leases

Income taxes receivable

Prepaid expenses and other current assets

20 unchanged sentences

Note payable, non-current

Earn-out, non-current

Accrued warranty reserve, non-current

1 unchanged sentence

Operating lease liabilities, non-current

Deferred income taxes

Total non-current liabilities

Total liabilities

Commitments and Contingencies (see Note 10)

Stockholders’ equity:

Preferred stock, $ 0.001 par value, 50,000,000 shares authorized;

none issued and outstanding as of September 30, 2022 and December 31,

none issued and outstanding as of March 31, 2023 and December 31, 2022

Common stock, $ 0.001 par value, 300,000,000 shares authorized;

20,155,704 shares issued and outstanding as of September 30, 2022;

23,235,065 shares issued and outstanding as of March 31, 2023;

20,252,677 shares issued and outstanding as of December 31, 2022

Additional paid-in capital

(Accumulated deficit) retained earnings

Accumulated deficit

Accumulated other comprehensive income

Total stockholders’ equity

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except share and per share data)

24 unchanged sentences

(In thousands, except share data)

Balances, June 30, 2022

Stock-based compensation

Exercise of common stock options and vesting of performance and restricted stock units

Net loss for the period

Balances, September 30, 2022

Balances, December 31, 2022

1 unchanged sentence

Exercise of common stock options and vesting of performance and restricted stock units

Common shares issued for employee stock purchase plan

Net loss for the period

Balances, September 30, 2022

Balances, June 30, 2021

Stock-based compensation

Exercise of common stock options and vesting of performance and restricted stock units

Taxes paid for net share settlement of performance and restricted stock units

Sale of common stock from follow-on public offering, net of offering expenses

Net loss for the period

Balances, September 30, 2021

Balances, March 31, 2023

Balances, December 31, 2021

1 unchanged sentence

Exercise of common stock options and vesting of performance and restricted stock units

Taxes paid for net share settlement of performance and restricted stock units

Common shares issued for employee stock purchase plan

Net loss for the period

Balances, September 30, 2021

Balances, March 31, 2022

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Cash flows from operating activities

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

12 unchanged sentences

Accrued expenses and other liabilities

Net cash provided by (used in) operating activities

Net cash used in operating activities

Cash flows from investing activities

Payments related to acquisition

Purchases of property and equipment

2 unchanged sentences

Cash flows from financing activities

Proceeds from issuance of note payable

Proceeds from revolving line of credit

Payments on note payable

Payments of deferred debt issuance costs

Taxes paid for net share settlement of performance and restricted stock units

Proceeds from exercise of common stock options

Proceeds from the issuance of common stock from the employee stock purchase plan

Net cash (used in) provided by financing activities

Net decrease in cash and cash equivalents

Proceeds from issuance of common stock at market

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents – beginning of period

21 unchanged sentences

We received net proceeds from the initial public offering of approximately $ 35.4 million, after deducting underwriting discounts and approximately $ 2.9 million of transaction expenses.

On February 27, 2023, we closed on a public offering of 2,875,000 shares of our common stock at a public offering price of $ 13.00 per share.

We received net proceeds from this offering of $ 34.6 million after deducting underwriting discounts, commissions, and offering expenses.

Our business is affected by seasonality.

2 unchanged sentences

This seasonality applies only to purchases and rentals of our products by patients covered by commercial insurance and is not relevant to Medicare, Medicaid or the Veterans Administration, as those payers either do not have plans that have declining deductibles over the course of the plan year and/or do not have plans that include patient deductibles for purchases or rentals of our products.

Further, seasonality trends have been, and may continue to be, significantly different than historical trends as a result of the COVID-19 pandemic and related impacts .

Basis of Presentation

2 unchanged sentences

In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included.

The results for the nine months ended September 30, 2022, are not necessarily indicative of results to be expected for the year ending December 31, 2022, or for any other interim period or for any future year.

The condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

The results for the three months ended March 31, 2023, are not necessarily indicative of results to be expected for the year ending December 31, 2023, or for any other interim period or for any future year.

The condensed consolidated interim financial statements should be read in conjunction with the audited financial

statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Principles of Consolidation

7 unchanged sentences

We have also seen staffing challenges, both in our organization and at the clinics we serve, as another lingering consequence of the COVID-19 pandemic.

While we saw some level of recovery in the second and third quarters of 2022, ongoing consequences of the pandemic remain uncertain.

While we saw some level of recovery in 2022 and the first quarter of 2023, ongoing consequences of the pandemic remain uncertain.

There are no reliable estimates of how long the pandemic will last, whether any recovery will be sustained or will reverse course, the severity of any resurgence of COVID-19 or variant strains of the virus, the effectiveness of vaccines and attitudes towards receiving them, or what ultimate effects the pandemic will have.

8 unchanged sentences

Significant Accounting Policies

There were no material changes in our significant accounting policies during the nine months ended September 30, 2022.

There were no material changes in our significant accounting policies during the three months ended March 31, 2023.

See Note 3 – “Summary of Significant Accounting Policies” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, for information regarding our significant accounting policies.

Accounting Pronouncement Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, “Reference Rate Reform (Topic 848) — Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), addressing the discontinuation of LIBOR, a widely used reference rate for pricing financial products.

The ASU is intended to provide optional expedients and exceptions if certain criteria are met when accounting for contracts, hedging relationships and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform.

The application and adoption requirements of ASU 2020-04 are optional until December 31, 2022 and vary based on expedients elected.

We have not elected any expedients to date and are currently evaluating any potential future impacts on the condensed consolidated financial statements.

I n December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2022-06, “Reference Rate Reform (Topic 848) — Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2022-06”), which provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The ASU deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

The ASU is effective as of December 31, 2022 through December 31, 2024.

to evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.

We have not elected any expedients to date and are currently evaluating any potential future impacts on the consolidated financial statements.

On September 8, 2021, we entered into an Asset Purchase Agreement (“AffloVest APA”) to acquire the AffloVest airway clearance business from IBC.

3 unchanged sentences

At closing, $ 80.0 million of the purchase price was paid, of which a total of $ 0.5 million was deposited into an escrow account at closing for purposes of satisfying certain post-closing purchase price adjustments and indemnification claims.

Subsequent to closing, $ 0.2 million was returned to us as a result of working capital adjustments.

Subsequent to closing, $ 0.2 million was returned to us as a result of working capital adjustments and the remaining $ 0.3 million was released to IBC.

The AffloVest Acquisition was funded through a combination of cash on hand and proceeds from borrowings.

4 unchanged sentences

provided that in no event will the payment exceed $ 10.0 million.

o The APA Amendment provides that the calculated amount of the initial earn-out payment is $ 10.0 million, of which the Company will pay $ 5.0 million on or before November 28, 2022, and of which the Company will pay $ 5.0 million, plus an imputed interest payment of $ 250,000 , on or before May 26, 2023.

o The APA Amendment provides that the calculated amount of the initial earn-out payment is $ 10.0 million, of which the Company paid $ 5.0 million on November 28, 2022, and of which the Company will pay $ 5.0 million, plus an imputed interest payment of $ 250,000 , on or before May 26, 2023.

● Second Earn-Out:

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This amount and the current versus non-current allocation is remeasured at the end of each reporting period until the payment requirement ends, with any adjustments reported in income from operations (see Note 15 – “Fair Value Measurements”).

On the date of AffloVest Acquisition, we allocated the assets acquired based on an estimate of their fair values.

The following table summarizes the purchase price allocation:

(In millions)

Allocated Fair Value

Property and equipment (1)

Intangible assets

Purchase price

(1) The purchase price included less than $ 0.1 million of property and equipment.

The goodwill reflects expected synergies of combining the acquired products and customer information with our existing operations, and is deductible for tax purposes over 15 years .

The following table reflects the allocation of the purchase price to the acquired intangible assets and related estimated useful lives:

(In millions)

Allocated Fair Value

Estimated Useful Life

Customer relationships

Developed technology

Total intangible assets

The weighted-average amortization period of the acquired definite-lived intangible assets was 12.3 years.

The fair market valuations associated with the assets acquired fall within Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value.

The fair value measurements were calculated using unobservable inputs, primarily using the income approach, specifically the discounted cash flow method.

The amount and timing of future cash flows within our analysis was based on our due diligence models, most recent operational budgets, long-range strategic plans and other estimates.

Inventories consisted of the following:

(In thousands)

At September 30, 2022

At March 31, 2023

At December 31, 2022

7 unchanged sentences

Our patents and other intangible assets are summarized as follows:

At September 30, 2022

At March 31, 2023

(In thousands)

17 unchanged sentences

Total intangible assets

Amortization expense was $ 1.0 million and $ 0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $ 2.9 million and $ 0.4 million for the nine months ended September 30, 2022 and 2021, respectively.

Amortization expense was $ 1.0 million for each of the three months ended March 31, 2023 and 2022.

Future amortization expenses are expected as follows:

(In thousands)

2022 (October 1 - December 31)

2023 (April 1 - December 31)

In the third quarter of 2022, we performed our annual goodwill impairment test utilizing both the qualitative and quantitative approach described in FASB ASU No.

2021-03, “Intangibles—Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events.

Based on the testing using the qualitative approach, it was determined that it was not more likely than not that the fair value of the reporting unit was less than the carrying value.

2021-03, “Intangibles—Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events.” Based on the testing using the qualitative approach, it was determined that it was not more likely than not that the fair value of the reporting unit was less than the carrying value.

As a result, it was not deemed necessary to proceed to the quantitative test and no impairment was recognized.

2 unchanged sentences

(In thousands)

At September 30, 2022

At March 31, 2023

At December 31, 2022

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

9 unchanged sentences

The Restated Credit Agreement amended and restated in its entirety our prior credit agreement.

On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amends the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent.

The Amendment, among other things, adds a $ 30.0 million incremental term loan to the $ 25.0 million revolving credit facility provided by the Restated Credit Agreement.

On September 8, 2021, we entered into a First Amendment Agreement (the “Amendment”), which amended the Restated Credit Agreement (as amended by the Amendment, the “Credit Agreement”) with the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent.

The Amendment, among other things, added a $ 30.0 million incremental term loan to the $ 25.0 million revolving credit facility provided by the Restated Credit Agreement.

The term loan is reflected on our condensed consolidated financial statements as a note payable.

The term loan and the revolving credit facility mature on September 8, 2024.

The Credit Agreement provides that, subject to satisfaction of certain conditions, we may increase the amount of the revolving loans available under the Credit Agreement and/or add one or more term loan facilities in an amount not to exceed $ 25.0 million in the aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $ 80.0 million.

aggregate, such that the total aggregate principal amount of loans available under the Credit Agreement (including under the revolving credit facility) does not exceed $ 80.0 million.

On September 8, 2021, in connection with the closing of the AffloVest Acquisition, we borrowed the $ 30.0 million term loan and utilized that borrowing, together with a draw of $ 25.0 million under the revolving credit facility and cash on hand, to fund the purchase price.

On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amended the Credit Agreement, including with respect to the financial covenants.

On February 22, 2022, we entered into a Second Amendment Agreement (the “Second Amendment”), which further amended the Credit Agreement.

The principal of the term loan is required to be repaid in quarterly installments of $ 750,000 commencing January 7, 2022, through July 8, 2024, with the remaining outstanding balance due on September 8, 2024.

Pursuant to the Second Amendment, we made a mandatory principal prepayment of the term loan of $ 3.0 million on February 22, 2022.

As of September 30, 2022, the outstanding balance of the term loan was $ 24.8 million and the outstanding balance under the revolving credit facility was $ 25.0 million.

As of September 30, 2022, there was no availability under our Credit Agreement.

The term loan and amounts drawn under the revolving credit facility bear interest, at our option, at a rate equal to (a) the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50 % and (iii) LIBOR for an interest period of one month plus 1 % (the “Base Rate”) plus an applicable margin or (b) LIBOR for an interest period of

one, three or six months, at our option, plus the applicable margin.

As of March 31, 2023, we had outstanding borrowings of $ 48.3 million under the Credit Agreement, comprised of $ 23.3 million under the term loan and $ 25.0 million under the revolving credit facility.

The applicable margin is 0.75 % to 2.25 % on loans bearing interest at the Base Rate and 1.75 % to 3.25 % on loans bearing interest at LIBOR, in each case depending on our consolidated total leverage ratio;

except that, pursuant to the Second Amendment, during the period commencing on February 22, 2022 and ending on the last day of the fiscal quarter ending June 30, 2023, the applicable margin for LIBOR rate loans is 3.50 % .

At September 30, 2022, all outstanding borrowings were subject to interest at a rate calculated at LIBOR plus an applicable margin, for an interest rate of 5.93 % .

At March 31, 2023, all outstanding borrowings were subject to interest at a rate calculated at LIBOR plus an applicable margin, for an interest rate of 8.28 % .

Undrawn portions of the revolving credit facility are subject to an unused line fee at a rate per annum from 0.300 % to 0.375 % , depending on our consolidated total leverage ratio.

Maturities of the term loan for the next three years as of September 30, 2022, are as follows:

Maturities of the term loan for the next two years as of March 31, 2023, are as follows:

(In thousands)

2022 (October 1 - December 31)

2023 (April 1 - December 31)

Our obligations under the Credit Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets and are also guaranteed by our subsidiaries.

The Credit Agreement contains a number of restrictions and covenants, including that we maintain compliance with a maximum leverage ratio, a minimum fixed charge coverage ratio, a minimum consolidated EBITDA covenant, and a minimum liquidity covenant.

As of September 30, 2022, we were in compliance with all financial covenants under the Credit Agreement.

As of March 31, 2023, we were in compliance with all financial covenants under the Credit Agreement.

Commitments and Contingencies

6 unchanged sentences

When available, we use the rate implicit in the lease to discount lease payments to present value;

however, certain leases do not provide a readily determinable implicit rate.

certain leases do not provide a readily determinable implicit rate.

Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

4 unchanged sentences

These leases are typically greater than one year with fixed, escalating rents over the noncancelable terms and, therefore, ROU operating lease assets and operating lease liabilities are recorded on the Condensed Consolidated Balance Sheets, with rent expense to be recognized on a straight-line basis over the term of the lease.

The remaining lease terms vary from approximately one to eight years as of September 30, 2022.

The remaining lease terms vary from approximately one to eight years as of March 31, 2023.

We entered into a lease (“initial lease”) in October 2018, for approximately 80,000 square feet of office space for our new corporate headquarters in Minneapolis, Minnesota.

3 unchanged sentences

The portion of the space covered under the initial lease was placed in service in September 2019.

This portion was recognized as an operating lease and included in the ROU operating lease assets and operating lease liabilities on the Condensed Consolidated Balance Sheets.

The portion of the space covered under the second lease commenced in September 2020.

2 unchanged sentences

Subsequent to the initial term, the lease becomes a month-to-month, cancelable lease.

As of September 30, 2022, we had approximately nine vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities.

In addition to monthly rental fees specific to the vehicle, there are fixed monthly nonlease components that have been included in the ROU operating lease assets and operating lease liabilities.

The nonlease components are not significant.

As of March 31, 2023, we no longer have any vehicles with agreements within the initial, noncancelable lease term that are recorded as ROU operating lease assets and operating lease liabilities.

Computer and Office Equipment

We also have operating lease agreements for certain computer and office equipment.

The remaining lease terms as of September 30, 2022, ranged from less than one year to approximately four years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities.

The remaining lease terms as of March 31, 2023, ranged from less than one year to approximately three years with fixed monthly payments that are included in the ROU operating lease assets and operating lease liabilities.

The leases provide an option to purchase the related equipment at fair market value at the end of the lease.

3 unchanged sentences

(In thousands)

At September 30, 2022

At March 31, 2023

At December 31, 2022

4 unchanged sentences

Weighted average discount rate

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental cash flow information for our operating leases:

3 unchanged sentences

(In thousands)

2022 (October 1 - December 31)

2023 (April 1 - December 31)

Total minimum lease payments

3 unchanged sentences

Non-current obligations under operating lease liabilities

Operating lease costs were $ 0.9 million for each of the three months ended September 30, 2022 and 2021.

Operating lease costs were $ 2.8 million and $ 2.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Operating lease costs were $ 0.9 million and $ 1.0 million for the three months ended March 31, 2023 and 2022, respectively.

Major Vendors

We had purchases from one vendor that accounted for 24 % of our total purchases for the three months ended September 30, 2022 and purchases from two vendors that accounted for 44 % of our total purchases for the nine months ended September 30, 2022.

We had purchases from two vendors that accounted for 36 % of our total purchases for the three months ended September 30, 2021 and purchases from one vendor that accounted for 24 % of our total purchases for the nine months ended September 30, 2021.

We had purchases from one vendor that accounted for 29 % of our total purchases for the three months ended March 31, 2023, and purchases from two vendors that accounted for 29 % of our total purchases for the three months ended March 31, 2022.

Purchase Commitments

We issued purchase orders prior to September 30, 2022, totaling $ 36.3 million for goods that we expect to receive within the next year.

We issued purchase orders prior to March 31, 2023, totaling $ 37.4 million for goods that we expect to receive within the next year.

Retirement Plan

We maintain a 401(k) retirement plan for our employees in which eligible employees can contribute a percentage of their pre-tax compensation.

We recorded an expense related to our discretionary contributions to the 401(k) plan of $ 0.4 million and $ 0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $ 1.1 million and $ 0.9 million for the nine months ended September 30, 2022 and 2021, respectively.

We recorded an expense related to our discretionary contributions to the 401(k) plan of $ 0.4 million for each of the three months ended March 31, 2023 and 2022.

Legal Proceedings

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All claims against three individual defendants were dismissed, and most claims against four other individual defendants were dismissed.

The Company remains a defendant on alleged Sections 10(b) and 20(a) claims.

We are defending the action as it proceeds.

On May 24, 2022, a stockholder derivative lawsuit was filed in the United States District Court for the District of Minnesota, purportedly on behalf of the Company against certain present and former officers and directors and the Company (as a nominal defendant), captioned Jack Weaver v.

On November 21, 2022, the Company announced that it entered into a Memorandum of Understanding to settle this matter.

The Company does not expect to fund any portion of cash payments made in connection with the $ 5 million settlement amount.

The settlement does not constitute an admission of liability or wrongdoing by the Company.

The settlement is subject to court approval.

On February 28, 2023, the parties executed a stipulation of settlement and the plaintiff filed an unopposed motion for preliminary approval of the class settlement with the court.

On April 26, 2023, the court issued a minute order indicating the motion would be approved and on May 4, 2023, issued the written order granting the motion for preliminary approval of the settlement.

A hearing for final approval of the settlement will be held on August 23, 2023.

On May 24, 2022, a stockholder derivative lawsuit was filed in the United States District Court for the District of Minnesota, purportedly on behalf of the Company against certain of our present and former officers and directors and the Company (as a nominal defendant), captioned Jack Weaver v.

Moen , et al., File No.

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In August 2022, the matter was transferred to the United States District Court for the District of Delaware by order granting the Parties Stipulation to Transfer.

It is now captioned Jack Weaver v.

Moen , et al., File No.

1:22-cv-01063-GBW.

On February 10, 2023, we filed a motion to dismiss the action.

The plaintiff filed an Amended Complaint on March 3, 2023.

On March 31, 2023, we filed a motion to dismiss the Amended Complaint.

We are defending the action as it proceeds.

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In addition, all awards granted under our 2007 Omnibus Stock Plan and our 2003 Stock Option Plan that were outstanding when the 2016 Plan became effective and that are forfeited, expired, cancelled, settled for cash or otherwise not issued, will become available for issuance under the 2016 Plan.

Pursuant to the automatic increase feature of the 2016 Plan, 972,591 shares were added as available for issuance thereunder on January 1, 2021.

Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022.

As of September 30, 2022, 5,916,065 shares were available for future grant pursuant to the 2016 Plan.

Our Board of Directors exercised its prerogative to forego the automatic increase on each of January 1, 2023 and 2022.

As of March 31, 2023, 5,614,397 shares were available for future grant pursuant to the 2016 Plan.

Upon adoption and approval of the 2016 Plan, all of our previous equity incentive compensation plans were terminated.

However, existing awards under those plans continue to vest in accordance with the original vesting schedules and will expire at the end of their original terms.

We recorded stock-based compensation expense of $ 2.6 million for each of the three months ended September 30, 2022 and 2021, and $ 7.7 million for each of the nine months ended September 30, 2022 and 2021.

We recorded stock-based compensation expense of $ 2.0 million and $ 2.2 million for the three months ended March 31, 2023 and 2022, respectively.

This expense was allocated as follows:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Stock options issued to participants other than non-employees typically vest over three or four years and typically have a contractual term of seven or ten years .

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $ 0.6 million and $ 1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $ 2.0 million and $ 3.3 million for the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022, there was approximately $ 2.2 million of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted-average period of 1.2 years.

Our stock option activity for the nine months ended September 30, 2022, was as follows:

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for stock options was $ 0.3 million and $ 0.7 million for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, there was approximately $ 1.0 million of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted-average period of 1.1 years.

Our stock option activity for the three months ended March 31, 2023, was as follows:

Exercise Price

4 unchanged sentences

Cancelled/Expired

Balance at September 30, 2022

Options exercisable at September 30, 2022

Balance at March 31, 2023

Options exercisable at March 31, 2023

(1) The exercise price of each option granted during the period shown was equal to the market price of the underlying stock on the date of grant.

1 unchanged sentence

The aggregate intrinsic value of options outstanding represents the difference between the exercise price of the option and the closing stock price of our common stock on the last trading day of the period.

Options exercisable of 508,184 as of September 30, 2021, had a weighted-average exercise price of $ 30.45 per share.

Options exercisable of 576,134 as of March 31, 2022, had a weighted-average exercise price of $ 36.57 per share.

Time-Based Restricted Stock Units

1 unchanged sentence

Time-based restricted stock units granted under the 2016 Plan vest over one to three years .

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $ 1.5 million and $ 1.2 million for the three months ended September 30, 2022 and 2021, respectively, and $ 4.5 million and $ 3.7 million for the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022, there was approximately $ 9.4 million of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 2.0 years.

Our time-based restricted stock unit activity for the nine months ended September 30, 2022, was as follows:

Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $ 1.3 million and $ 1.4 million for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, there was approximately $ 9.8 million of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 2.2 years.

Our time-based restricted stock unit activity for the three months ended March 31, 2023, was as follows:

Average Grant

2 unchanged sentences

Balance at December 31, 2022

Balance at September 30, 2022

Balance at March 31, 2023

(1) The aggregate intrinsic value of restricted stock units outstanding was based on our closing stock price on the last trading day of the period.

2 unchanged sentences

These PSUs have both performance-based and time-based vesting features.

The PSUs granted in 2020 would have been earned to the extent performance goals based on revenue and adjusted EBITDA were achieved in 2021, but none were so earned.

The PSUs granted in 2021 will be earned if and to the extent performance goals based on revenue and adjusted EBITDA are achieved in 2022.

The PSUs granted in 2022 will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin

are achieved in 2023.

The PSUs granted in 2021 were earned based on the extent to which performance goals based on revenue and adjusted EBITDA were achieved in 2022.

The PSUs granted in 2022 will be earned if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in 2023.

The number of PSUs earned will depend on the level at which the performance targets are achieved and can range from 50 % of target if the minimum performance threshold is achieved and up to 150 % of target if maximum performance is achieved.

One-third of the earned PSUs will vest on the date the Compensation and Organization Committee certifies the number of PSUs earned, and the remaining two-thirds of the earned PSUs will vest on the first anniversary of that certification date.

The PSUs granted in 2023 have three separate performance periods, and one-third of each grant will be earned

if and to the extent performance goals based on revenue change and adjusted EBITDA margin are achieved in each of 2023 and 2024 (ranging from 25 % to 175 % of target), and one-third will be earned if and to the extent performance goals to be established are achieved in 2025.

All earned and vested PSUs will be settled in shares of common stock.

Stock-based compensation expense recognized for PSUs was $ 0.3 million and $ 0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $ 0.5 million and less than $ 0.1 million for the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022, there was approximately $ 2.2 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.3 years.

Our performance-based restricted stock unit activity for the nine months ended September 30, 2022, was as follows:

Stock-based compensation expense recognized for PSUs was $ 0.2 million and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, there was approximately $ 2.6 million of total unrecognized pre-tax compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 2.4 years.

Our PSU activity for the three months ended March 31, 2023, was as follows:

Average Grant

2 unchanged sentences

Balance at December 31, 2022

Balance at September 30, 2022

(1) The aggregate intrinsic value of performance-based restricted stock units outstanding was based on our closing stock price on the last trading day of the period.

Balance at March 31, 2023

(1) The aggregate intrinsic value of PSUs outstanding was based on our closing stock price on the last trading day of the period.

Employee Stock Purchase Plan

5 unchanged sentences

This share reserve will automatically be supplemented each January 1, commencing in 2017 and ending on and including January 1, 2026, by an amount equal to the least of (a) 1 % of the shares of our common stock outstanding on the immediately preceding December 31, (b) 500,000 shares or (c) such lesser amount as our Board of Directors may determine.

Pursuant to the automatic increase feature of the ESPP, 194,518 shares were added as available for issuance thereunder on January 1, 2021.

Our Board of Directors exercised its prerogative to forego the automatic increase on January 1, 2022.

As of September 30, 2022, 1,623,486 shares were available for future issuance under the ESPP.

We recognized stock-based compensation expense associated with the ESPP of $ 0.2 million for each of the three months ended September 30, 2022 and 2021, and $ 0.7 million and $ 0.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Our Board of Directors exercised its prerogative to forego the automatic increase on each of January 1, 2023 and 2022.

As of March 31, 2023, 1,559,151 shares were available for future issuance under the ESPP.

We recognized stock-based compensation expense associated with the ESPP of $ 0.2 million for each of the three months ended March 31, 2023 and 2022 .

We derive our revenue from the sale and rental of our products to our customers in the United States.

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Airway clearance products

Our revenue by channel, inclusive of sales and rental revenue, for the three and nine months ended September 30, 2022 and 2021, are summarized in the following table:

Our revenue by channel, inclusive of sales and rental revenue, for the three months ended March 31, 2023 and 2022, are summarized in the following table:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

14 unchanged sentences

Completion of these payments represents the fair market value of the equipment, and as such, interest income is not applicable.

Rental revenue for the three and nine months ended September 30, 2022 and 2021, was primarily from private insurers.

Sales-type lease revenue and the associated cost of revenue for the three and nine months ended September 30, 2022 and 2021, was:

Three Months Ended September 30,

Nine Months Ended September 30,

Rental revenue for the three months ended March 31, 2023 and 2022, was primarily from private insurers.

Sales-type lease revenue and the associated cost of revenue for the three months ended March 31, 2023 and 2022, was:

Three Months Ended March 31,

(In thousands)

1 unchanged sentence

Cost of sales-type lease revenue

We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjusting for discrete tax items recorded in the period.

We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income (loss) and adjusting for discrete tax items recorded in the period.

Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes.

1 unchanged sentence

Our provision for income taxes included current federal and state income tax expense, as well as deferred federal and state income tax expense.

The effective tax rate for the three months ended September 30, 2022, was a benefit of 3.3 % , compared to an expense of 126 % for the three months ended September 30, 2021.

The primary driver of the change in the Company’s effective tax rate is attributable to a full valuation allowance being recorded for net deferred tax assets for the current period, whereas no valuation allowance was recorded for 2021.

We recorded an income tax benefit of $ 77 thousand and an expense of $ 1.9 million for the three months ended September 30, 2022 and 2021, respectively.

The effective tax rate for the nine months ended September 30, 2022, was an expense of 0.5 % , compared to a benefit of 24 % for the nine months ended September 30, 2021.

We recorded an income tax expense of $ 0.1 million and a benefit of $ 1.4 million for the nine months ended September 30, 2022 and 2021, respectively.

The effective tax rate for the three months ended March 31, 2023, was a benefit of 60.7 % , compared to an expense of 1.4 % for the three months ended March 31, 2022.

The primary driver of the change in our effective tax rate is attributable to our expectation that we will have current taxes payable for 2023, despite having a full valuation allowance.

Additionally, there are significant permanent adjustments for nondeductible meals expense which were not relevant to the prior year period.

We recorded an income tax benefit of $ 2.9 million and an expense of $ 0.2 million for the three months ended March 31, 2023 and 2022, respectively.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority is more-likely-than-not to sustain the position following an audit.

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except share and per share data)

Weighted-average shares outstanding

Dilutive effect of stock-based awards

Weighted-average shares used to compute diluted net loss per share

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Restricted stock units

9 unchanged sentences

The lowest priority is given to unobservable inputs (Level 3).

We have obligations to pay up to $ 20.0 million in earn-out payments in cash if certain future U.S.

As of March 31, 2023, we had obligations to pay a $ 5.0 million agreed-upon earn-out payment in cash and up to an additional $ 10.0 million earn-out payment in cash if certain future U.S.

revenues of the AffloVest are met.

8 unchanged sentences

Earn-out liability at December 31, 2022

Addition for acquisition

Fair value adjustments

Earn-out liability at September 30, 2022

As of September 30, 2022, the earn-out liability totaled $ 17.1 million, $ 7.1 million of which was non-current and $ 10.0 million of which had been earned and is a current liability.

The following provides information regarding fair value measurements for our remaining contingent earn-out liability as of September 30, 2022, and December 31, 2021, according to the three-level fair value hierarchy:

At September 30, 2022

Earn-out liability at March 31, 2023

(In thousands)

Earn-out liability at December 31, 2021

Fair value adjustments

Earn-out liability at March 31, 2022

As of March 31, 2023, the fair value of the earn-out liability accrued but not yet earned totaled $ 8.7 million and was classified as a current liability.

The remaining $ 5.0 million of the earn-out liability had been earned, is to be paid by May 26, 2023 and was classified as a current liability.

The following provides information regarding fair value measurements for our remaining contingent earn-out liability as of March 31, 2023, and December 31, 2022, according to the three-level fair value hierarchy:

At March 31, 2023

Quoted Prices

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements